JLN Options: Short-term strategies boost US options trading

Jan 10, 2012

Lead Stories

Short-term strategies boost US options trading
Tom Osborn, Financial news (subscription)
10 Jan 2012
Record trading in US equity options markets last year was boosted by fund managers increasingly hedging short-term equity positions using short-dated options contracts, according to a report from US research firm Tabb Group, as the US market gears up for another heavy year of trading on the back of volatile cash markets.  Volumes in the US options market reached record levels in 2011, despite flagging slightly in December, with 4.5 billion contracts changing hands across the market’s nine exchanges. That figures represents a 17% rise over 2010, according to US trade body the Options Industry Council.
The report, by Tabb’s chief derivatives analyst Andy Nybo, suggested a record 8% of the contracts traded for the year were short-dated options, which expire on a weekly basis. Typically, option contracts on companies are listed on a monthly basis, meaning an option holder automatically gains the right to buy or sell that company’s stock at a pre-agreed price after one month has passed.
http://jlne.ws/wtrGah

Short-Term Options Drove US-Listed Options to Record Levels in 2011, Says TABB Group
MarketWatch
Short-Term Volumes Accounted for 8% of Trading in 2011, According to New Research
NEW YORK & LONDON, Jan 10, 2012 (BUSINESS WIRE) — Short-term options represent one of the most successful products launched by options exchanges in recent years, with demand from retail and institutional investors driving growth, says TABB Group in new research published today, “Accelerated Expirations: The Growing Relevance of Short-term Options.”
According to TABB, short-term options (STOs) were a significant factor behind record options volume in 2011 with STOs accounting for 8.3% of the total 4.6 billion contracts traded for the year. Short-term options accounted for a peak 11.7% of total volume in October 2011, when volume reached 45.7 million contracts. Comparatively, one year earlier in October 2010, STOs trading volume totaled 20.8 million contracts. ” http://jlne.ws/AxQ22d

CME Group Congratulates New FIA President Walt Lukken
Press Release
Jan. 10, 2012
CHICAGO, Jan. 10, 2012 /PRNewswire via COMTEX/ — CME Group, the world’s leading and most diverse derivatives marketplace, released the following statement on Walt Lukken being named the new president of the Futures Industry Association (FIA):
“We congratulate Walt Lukken on his appointment to head the Futures Industry Association. CME Group has had a long history of working closely with Walt during his tenure as Commissioner and then Acting Chairman of the Commodities Futures Trading Commission. His experience and depth of knowledge make him an ideal candidate to lead the FIA and we look forward to working with him to ensure the CFTC properly implements Dodd-Frank, enhances customer protection mechanisms following the failure of MF Global, and enhances the global competitiveness of U.S. futures markets.”
“We also commend John Damgard for his 30 years of leadership as FIA President.
http://jlne.ws/ApllkA
— JLN Options congratulates Walt Lukken as well. Never thought the Damgard era would actually come to an end.

FIA Announces Leadership Succession
Washington, D.C.—Jan 10, 2012—The Futures Industry Association announced today that its board of directors has appointed Walter Lukken as president and chief executive officer. Lukken brings to the FIA many years of experience in government as well as expertise in the mechanics of clearing, a critically important issue for the FIA and its members. He succeeds John Damgard, who has been the head of the association since 1982.
“We are delighted to announce this appointment. Walt is a tremendously talented individual with extraordinary experience and industry knowledge, and we are very fortunate to have someone of his caliber to lead the FIA at this important moment in its history,” said Michael Dawley, chairman of the FIA and co-head of futures and derivatives clearing services at Goldman, Sachs & Co.
The appointment concluded a selection process that began in March 2011, when Damgard announced his plans to retire. Lukken will take up the new position in time for the next annual meeting of the FIA board of directors scheduled for March 12. Damgard will remain with the organization as a senior advisor.*
http://jlne.ws/AcbRBN

* On the other hand, maybe it’s not quite coming to an end.

Deutsche Boerse, NYSE Chiefs Set to Meet Amid Rising Opposition to Merger
By Nandini Sukumar and Aoife White – Jan 10, 2012
Jan. 10 (Bloomberg) — European antitrust regulators have until Feb. 9 to evaluate Deutsche Boerse AG’s takeover of NYSE Euronext and have yet to communicate a formal ruling, according to the exchange companies. Suzanne O’Halloran reports on Bloomberg Television’s “Money Moves.” (Source: Bloomberg)
The chief executive officers of Deutsche Boerse AG (DB1) and NYSE Euronext will meet in New York tomorrow to discuss rising opposition to their planned merger, according to two people with direct knowledge of the matter.
Reto Francioni and executives of Deutsche Boerse are flying to meet NYSE’s Duncan Niederauer after the companies said today that no official decision has been received from European antitrust regulators on the deal. Shares of the exchange operators rose more than 5 percent after the Financial Times said the European Commission would block it.
http://jlne.ws/xJmST7

3rd UPDATE: NYSE-Deutsche Boerse Merger Rejected By EU Regulators
WSJ.com
By Jacob Bunge and Stephen Fidler Of DOW JONES NEWSWIRES
–Regulators recommend prohibition of exchanges’ merger plan
–Deal still must be ruled on by EU commissioners
–Exchanges concentrating efforts on lobbying commissioners
(Updates with sourcing to EU official, additional background, share price.)
Regulators of the European Union have preliminarily rejected the proposed merger between NYSE Euronext (NYX) and Deutsche Boerse (DBOEF, DB1.XE), according to a senior European Union official.
A recommendation to prohibit the $17 billion combination had been widely expected after EU antitrust officials continued to harbor concerns around the two exchange companies’ combined power in derivatives trading despite several remedies proposed by the firms, including the spinoff of some overlapping contracts.
Spokesmen for Deutsche Boerse and NYSE Euronext said in separate statements Tuesday that the merger candidates hadn’t yet received any notice of a decision by the EU on the deal. A spokeswoman for the European Union antitrust division declined comment.
http://jlne.ws/xhe110

Quick View: Bulking up – is it worth it any more?
FT.com By Jeremy Grant
The biggest exchange merger ever attempted looks like it’s hitting the buffers.
Europe’s antitrust authorities have blocked the Deutsche Börse-NYSE Euronext deal, our sources tell us.
They argue that the combination of the two groups’ derivatives exchanges Eurex and Liffe, would snuff out competition in European derivatives. They have suggested that the two groups divest a derivatives business – probably Liffe. But that would kill the rationale for the whole deal since derivatives is the most lucrative part of an exchange’s business.

http://jlne.ws/w0vB9u

CBSX Completes Acquisition of NSX
Peter Chapman, Traders Magazine Online News, January 10, 2012
The stock exchange subsidiary of the Chicago Board Options Exchange completed its acquisition of the National Stock Exchange at the end of last year. The deal gives the CBOE Stock Exchange a second license. Both exchanges will continue to operate separately under their current names, but will merge staffs in Chicago and Jersey City, according to a statement from CBSX.
http://jlne.ws/xG8Xft

U.S. Stock Options With Biggest Changes in Implied Volatility
By Bloomberg News – Jan 10, 2012
The following are the U.S. stock options that had the biggest percentage changes in implied volatility from the previous trading day as of 11:30 a.m. in New York.
http://jlne.ws/xkEnyH

Exchanges

CME’s Duffy: Unaware Of Any Effort To ‘Break Up’ CME Group -CNBC
By Jacob Bunge Of DOW JONES NEWSWIRES
The executive chairman of CME Group Inc. (CME) said Tuesday that the futures exchange operator was “very much unaware” of any regulatory effort to “break up” the company. The comments from CME’s Terry Duffy, made in an interview with CNBC, followed reports this week that authorities in Washington were considering a forced spin-off of CME’s regulatory functions following the collapse of MF Global Holdings Ltd. (MFGLQ) in late October. CME served as MF Global’s main regulator at the exchange level, responsible for auditing futures brokers like MF and other functions not performed by the Commodity Futures Trading Commission.

NYSE Euronext Announces Trading Volumes for December 2011 and Other Metrics
Global Derivatives ADV Up 12% Year-over-Year; U.S. Equity Options ADV Up 17% NEW YORK, Jan 10, 2012 (BUSINESS WIRE) — –NYSE Liffe U.S. Crosses One Million Contracts in Total Exchange Open Interest –European Cash ADV Up 9%; U.S. Cash ADV Down 11% NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for December 2011(1). Global derivatives average daily volume (“ADV”) of 7.5 million contracts in December 2011 increased 11.8% versus the prior year with U.S. equity options increasing 17.1%. Cash equities ADV in December 2011 were mixed, with European cash trading ADV increasing 9.0% and U.S. cash trading ADV decreasing 10.6% from December 2010 levels.
http://jlne.ws/xkvQcY
 
CBOE Futures Exchange to launch security futures trading in emerging markets volatility index
Hedgeweek Tue, 10/01/2012
CBOE Futures Exchange is to launch trading in security futures on the CBOE Emerging Markets ETF Volatility Index on Monday, 9 January, pending regulatory approval. The VXEEM Index reflects the implied volatility of the iShares MSCI Emerging Markets Index exchange-traded fund (ETF) (ticker:EEM). EEM options were the eleventh most actively traded option at CBOE in 2011. In addition to hedging emerging markets volatility exposure or making direct plays on emerging markets volatility, VXEM security futures – in conjunction with other volatility products – will allow market participants to trade cross-index or cross-asset volatility.
Barclays Capital will be a Lead Market Maker for VXEM security futures.
http://jlne.ws/zKPHhZ

Strategy

How to Profit From a Busted Stock-Exchange Merger
Barrons.com
By STEVEN M. SEARS
Use options to position for the likely termination of merger plans between NYSE Euronext and Deutsche Börse.
It is time to prepare for NYSE Euronext and Deutsche Börse to announce the cancelation of their star-crossed merger plan. The securities exchanges recently extended the deal termination date to March 31 in what is likely a final effort to win European approval. The U.S. Justice Department has approved the deal that was initiated in February 2010, but European regulators are concerned the deal may stifle competition in European derivative markets. The delays are potential negatives.
“People are coming to the realization that this thing is unlikely to occur,” a senior trader at a major options market-making firm said.
http://jlne.ws/zlyKNT

SPDR Gold Trust: Using Options To Hedge Against A Gold ETF Collapse
ETF DAILY NEWS
January 10th, 2012
Sam Kirtley: At SK Options Trading, we primarily use the SPDR gold trust (NYSEARCA:GLD) for exposure to the gold price. GLD is an exchange traded fund, designed to track the price of one tenth of an ounce of gold. GLD currently holds around 1280 tonnes of physical bullion, the sixth largest holding in the world, preceded only by the U.S. Germany, the IMF, Italy and France. The major benefit of using an ETF such as GLD is that one can gain exposure to the gold price as easily as buying a stock and one can effectively trade gold options as easily as trading stock options.
http://jlne.ws/yWR2IN

Cash is still king, at least for now
Commentary: Conservative strategy ready to re-enter market
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) — It’s not yet time for conservative investors to get back into the stock market — but it could be close.
That’s the message of a stock timing model that keys off the CBOE’s Volatility Index /quotes/zigman/2766221 VIX -1.80% . In its simplest form, the model calls for going to cash whenever the VIX rises above its median level of just shy of 20, and staying there until the VIX drops back below. A buy signal could be close at hand, however: The VIX is now back to the low 20s — and could easily drop below its long-term median in the next week or two.
http://jlne.ws/yEbZH6

Should You Use Options? Definitely, Just Practice Safe Strategy
Seeking Alpha by: Rocco Pendola January 10, 2012
Somehow, a portion of the comments section in a recent article about Apple’s (AAPL) dominance turned into a mini-debate over the safety, or perceived lack thereof, of options trading among retail investors:  http://jlne.ws/w3g4yu

Largest option buying in equities so far
NASDAQ.com
by David Russell from optionMONSTER in Investing, Options
Nearing the halfway mark in today’s session, here are the individual equity names with the most call and put buying on optionMONSTER’s ActionTracker data system.
http://jlne.ws/zcVfom

Options Education

Energy Investing In 2012: How To Come Out On Top In Volatile Markets
Seeking Alpha
by: Elliott Gue January 10, 2012
With the ongoing EU sovereign-debt crisis conjuring painful memories of the 2008-09 financial crisis for many investors, bigger-picture concerns drove global equity markets in 2011. A surge in market volatility and the increased correlation between stocks reflect the primacy of macro developments over stock-specific news and catalysts.
http://jlne.ws/wDC80U

— Mostly basic info on trading volatility

Events

CBOE, C2, CFE, and CBSX
Trading Schedule for Mart
in Luther King, Jr. Holiday
CHICAGO, January 10, 2012 – CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the following trading schedules for Chicago Board Options Exchange (CBOE), C2 Options Exchange (C2), CBOE Futures Exchange (CFE) and CBOE Stock Exchange (CBSX) in observance of the Martin Luther King, Jr. Holiday; all times are Chicago time:
Friday, January 13:
CBOE, C2, CFE and CBSX will have regular trading hours for all products.
Monday, January 16:
CBOE, C2, CFE and CBSX will be closed.

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